The long road back to a budget surplus

January 13, 2014

Gov. Earl Ray Tomblin's fourth State of the State speech to a joint session of the Legislature in the House of Delegates chamber last Wednesday night was correctly described by the Charleston Gazette the following morning as emphasizing "accomplishments over new initiatives" for the 60-day legislative session that began earlier in the day.

He did not suggest any new taxes to help balance the state budget for the 2014-2015 fiscal year that begins July 1. Instead he said the plan is to tap the state's Rainy Day Fund-boasting a current balance of $920 million-for $83.8 million to make up the revenue shortfall in next year's spending plan.

This will cover his recommended two percent pay raise for teachers and school service personnel as well as a $504 annual raise for state employees. But since this still results in a $265 million revenue gap, the governor also has recommended a 7.5 percent spending cut to avoid raising taxes.

It remained for Secretary of Revenue Bob Kiss to explain the "short-term budget shortfalls" that he insisted did not represent any long-term structural problems with the state's tax and spending policy.

"Yes, we're going to use some one-time resources (i. e. the $920 million in the Rainy Day Fund) to get through the next couple of years, but we're not going to build budgets over the long term using those one-time resources," Secretary Kiss told reporters at the budget briefing last Wednesday afternoon.

Kiss said if "current tax and spending policies remain in place, the state (general fund) budget will naturally return to surpluses by 2018."

West Virginia has significantly reduced taxes in recent years. The food tax for consumers was eliminated, the business franchise tax is due to be phased out next year and the corporate net income tax has been reduced from 9 percent to 6.5 percent. Altogether, this represents an annual tax revenue loss of about $425 million per year for the state.

However, so-called "stagnant wage growth in the state" has been more of a factor recently, according to officials of the State Tax Department. Deputy Revenue Secretary Mark Muchow told the Charleston Daily Mail that the "recent decline in the coal industry has really had an impact on wage growth."

Gov. Tomblin is recommending a $4.7 billion budget for the state the next fiscal year, which is some $86 million higher than the budget for the current year. The cause is $87 million in additional Medicaid spending at a time when the federal government is picking up an increasingly smaller portion of the overall costs for that program.

Meanwhile, a boost in this state's minimum wage is one of the goals of the Democrat majority in the House of Delegates during the current legislative session, House Speaker Tim Miley, D-Harrison, said last week. The current rate minimum wage rate in West Virginia is $7.25 per hour.

The last minimum wage rate increase came in three steps between July 2007 and July 2009, when it went from $5.15 to $7.25. West Virginia and most surrounding states have maintained that federal rate, but neighboring Ohio increased its rate to $7.95 Jan. 1. However, Ohio only applies that rate to businesses that have annual gross receipts of more than $292,000 a year.

Democrats in the House of Delegates here want to gradually increase this state's minimum wage rate by $1 to $8.25 in steps by 2016. President Obama unsuccessfully proposed increasing the minimum hourly wage rate to $9 by 2015 during his State of the Union address last year, but Congress wouldn't go along with it.

Steve Roberts, state Chamber of Commerce president, said recently that while some small businesses have some concerns about this proposed increase, the majority seem to be open to it. He said he discussed the idea with both business owners and lawmakers at the 2014 Legislative Kick-off event at the Charleston Town Center Marriott last week and said they plan to study it further.

Finally, State Senate President Jeff Kessler, D-Marshall, told members of the Charleston Regional Chamber of Commerce at a breakfast meeting last week that the state's home rule law "is a mess. I don't think we ever intended to introduce a home rule bill to handcuff cities to a decision between whether they can grant economic opportunity and foster tax relief or remove dilapidated buildings as a condition to whether nor not you can carry a gun."

His comments came in response to a question about Charleston's pending decision between participating in home rule or getting rid of its gun laws.

During the 2013 legislative session, the Legislature passed a home rule renewal bill that revoked participating cities' rights to regulate the sale and carrying of firearms within city limits. Mayor Danny Jones said recently the city hasn't yet made a decision about its participation in home rule. It must decide by June 1.